Do you have to pay back 100 percent of all your debts if you file a Chapter 13?
The quick answer is no, not all of your debts. There are different types of debts. What you must have is enough disposable income to pay 100% to your priority creditors; cure the default 100% percent to secured creditors on property you want to keep and pay a variable percent, from 0% to 100%, to unsecured creditors. The percentage you pay to your unsecured creditors is dependent on the amount of disposable income left after you pay the creditors you must pay at 100%.
The Central District of California Chapter 13 Plan pays a percentage to your unsecured creditors. The percentage is determined by your disposable income. What is disposable income? It is the amount left over after you deduct your allowable necessary expenses from your income.
Creditors are classified by type. Examples of priority creditors are domestic support obligations, certain taxes, and claims against you for death or personal injury resulting from driving under the influence of drugs or alcohol, to name a few. The most common types of creditors with non-dischargeable claims are creditors holding claims for fraud, student loan obligations, taxes, domestic support obligations. Secured creditors are creditors that can take something back if they are not paid, such as a home, automobile, or jewelry. Unsecured creditors are typically credit cards, medical debts, and personal loans.
You must pay your priority creditors 100% unless you are able to negotiate with them, such as in the case where our office negotiated with the State of California for a Father who owed an overwhelming amount of child support after he became sober. The State agreed to accept less than 100% during the 5 years of the plan and the Father agreed to continue making payments on the balance after his bankruptcy discharge. This allowed the Father to pay his current child support, support himself and have enough money left to afford visitation with his Children while he was dealing with his debts. The State of California’s agreement allowed the Court to confirm the Chapter 13 Case.